CENTRE O F TAX EXCELLENCE TAX GUIDE 2014 / 15.

Transcription

1 CENTRE O F TAX EXCELLENCE TAX GUIDE 2014 / 15

2 TAX GUIDE 2014/15 CONTENTS BUDGET SUMMARY...4 RESIDENCE BASIS TAXATION... 7 Tax Rates: Individuals... 9 Tax rates: Trusts... 9 Tax rates: Companies Small Business Corporations Personal service providers Labour broker Microbusiness (turnover tax) Taxation of Real Estate Investment Trusts Provisional tax Taxation of individuals and employees Married persons Employees tax (PAYE) Employees tax for directors Variable employment income from 1 March Travel allowance Subsistence allowance Fringe benefits Residential accommodation Bursaries and scholarships Low-interest or interest-free loans Right of use of an asset Free or cheap services Acquisition of asset at less than actual value Payment of employee s debts Meals and refreshments Uniforms Share incentive schemes Deductions - individuals Home study expenses Limitation of employee deductions Ringfencing of assessed losses

3 Pre-trade expenditure Income replacement policies Pension fund contributions Retirement annuity fund contributions Arrear contributions Provident fund contributions Employer policies Donations Deduction for medical and dental expenses Exempt income - individuals Relocation allowance Foreign employment Interest earned Foreign dividends Individual disability insurance Retirement fund lump sum tables Wear-and-tear allowance Capital incentives and allowances DIVIDENDS TAX Definitions Equity share Dividends on certain shares deemed to be income in relation to recipients thereof Dividends on third-party backed shares deemed to be income in relation to recipients thereof...58 WITHHOLDING TAXES Interest Royalties Payment to foreign entertainers and sportspersons Cross-border management/technical/consultancy fees Disposal of immovable property DONATIONS TAX (Section 54 ITA) SECURITIES TRANSFER TAX VALUE-ADDED TAX ESTATE DUTY TRANSFER DUTY SKILLS DEVELOPMENT LEVY (SDL) UNEMPLOYMENT INSURANCE FUND (UIF) OCCUPATIONAL INJURIES AND DISEASES

4 CAPITAL GAINS TAX (CGT) ADMINISTRATIVE PENALTIES Remittance of first incidence or nominal non-compliance Remittance for exceptional circumstances Objection and appeal against decision not to remit Understatement penalties EXCHANGE CONTROL REGULATIONS TABLES Interest rates payable on credit amounts Official rate of interest as per paragraph 1 of the 7 th Schedule to the ITA Interest rates charged on outstanding taxes duties and levies and interest rates payable on refunds IT 14 codes: Provinces 83 Employees' tax (IRP5) certificate codes REFERENCES IN THE GUIDE Income Tax Act (as amended) Value-Added Tax Act (as amended) Act No 31 of 2013: Taxation Laws Amendment Act, 2013 Act No 39 of 2013: Tax Administration Laws Amendment Act, 2013 National Budget Speech, 2014 Budget Review,

5 BUDGET SUMMARY Provides direct personal income tax relief of R9,25 billion. Proposes that the current tax-free, interest-income caps be replaced with tax-preferred savings and investment accounts to encourage greater savings among South Africans. A new document 1 was released demonstrating the intention to proceed with the implementation of tax-free savings accounts. Tax exemptions on interest, dividends and capital gains will be granted for investments of not more than R per annum per individual and a lifetime contribution limit of R Investments in bank deposits, collective investment schemes, exchange-traded funds and retail savings bonds will be allowed to be offered with these tax exemptions by banks, asset managers, life insurers and brokers. The revised proposal now retains the current interest income exemption, but it is not intended that the exemptions increase with inflation, hence the real value of these interest tax exemptions will reduce over time. These transitional arrangements should allow sufficient time for individuals to restructure their financial affairs to the new regime of tax-free savings accounts. Retirement savings reform: Individuals are allowed a deduction of 27,5% on the higher of remuneration or taxable income (excluding retirement annuity or lump sum income), with an annual deduction limited to R with effect from 1 March All retirement vehicles will receive the same tax treatment. Provident fund members will receive a tax deduction. Nondeductible contributions are exempt from income tax on retirement. A roll-over dispensation for contributions has been introduced. Reformation of trust will result in the following: - Discretionary trusts should no longer act as flow-through vehicles. Taxable income and loss (including capital gains and losses) to be calculated at trust level with distributions 1 Non-retirement savings: tax free savings account. 14 March 2014, National Treasury 4

6 acting as deductible payments to the extent of current taxable income. - Trading trusts - conduct a trade or beneficial ownership interests freely transferrable - will be taxed at entity level and distributions act as deductible payments. - Distributions from offshore foundations to be treated as ordinary revenue. A gambling tax of 1% of gross gambling revenues is likely to be introduced. Small business and entrepreneurship: - Turnover tax regime for microbusinesses Turnover tax regimes to be retained, but it is proposed that requirements be simplified, and thresholds and tax rates adjusted. The Dennis Davis Tax Review Committee proposes that turnover up to R should not be taxed (i.e. a zero tax rate) and the maximum tax rate should be reduced from the current 6% to 5%. Other suggestions include doing away with the requirement for businesses to opt in to the regime for three years and requiring annual, rather than biannual, tax returns. - Small business corporation tax relief The Dennis Davis Tax Review Committee recommends replacing the reduced tax rate regime with an annual refundable tax compliance rebate (subject to certain conditions). Government accepts this recommendation, subject to public consultation. - Venture capital company regime The venture capital company tax regime aims to encourage investment into small businesses and junior mining companies. Following consultations with interested parties, government will propose one or more of the following amendments: 5

7 Making deductions permanent if investments are held for a certain period of time. Allowing transferability of tax benefits when investors dispose of their holdings. Increasing the total asset limit for qualifying investee companies from R20 million to R50 million, and from R300 million to R500 million for junior mining companies. Waiving capital gains tax (CGT) on the disposal of assets, and expanding the permitted business forms. National health insurance to be phased in over 14 years. Carbon tax: The implementation of carbon tax is postponed to 2016 and more public consultation is expected. Fuel levies and Road Accident Fund levy rose by 12c/l and 8c/l respectively from 2 April It is proposed that the tax-free lump-sum paid out at retirement increases funds from R to R Increases in excise duty: - Alcoholic beverages increase by 9c for a 340ml can of beer. - Cigarette cost increases by 68c for a packet of Whisky goes up by R4.80 a bottle with immediate effect. VAT amendments - Second-hand goods precious metals. Government proposes that the notional input tax on second-hand goods made from precious metals be excluded. Tax administration - Four-monthly VAT Category F It is proposed that the four-monthly VAT Category F, which allows vendors to register when the taxable supplies constitute R1,5 million or less during a 12-month period, be eliminated. 6

8 - Registration of tax practitioners Taxpayers are advised to use tax practitioners who are recognised by the South African Revenue Service (SARS). Act 39 of 2013: Tax Administration Laws Amendment Act confirms that employees under supervision of a tax practitioner may not register. This will require the partner or director who is a registered tax practitioner to accept accountability for the actions of junior staff and trainees (including articled clerks), for example, for purposes of complaints by taxpayers or SARS to the relevant recognised controlling body. - Judge Dennis Davis Tax Review Committee A report on small and medium enterprises was completed and delivered to the Minister of Finance in January The following will also be reviewed: Whether the present tax system achieves a justifiable balance between direct and indirect taxes, The current system of mining taxes, Role of wealth taxes in the tax system, including estate duty, its relationship with capital gains tax and the broader role of wealth taxes in a system. RESIDENCE BASIS TAXATION South African residents must account for their worldwide income, whether ordinarily resident or through being physically present in the Republic, income is taxed in South Africa, regardless of the source. There are, however, several exemptions. Ordinarily resident generally means the place where a person has his/her place or permanent residence. If a person is outside the Republic and intends to return to the Republic to keep it his/her permanent home, such a person is regarded as a resident. Some of the criteria that are used to establish the location where someone is ordinarily resident are: 7

9 the place of his/her most fixed and settled place of residence; the place of business and personal interests; the location of personal belongings, or whether an application has been made for permanent residency elsewhere. (If a person has formally emigrated from South Africa it is likely that he/she has decided to make another country his/her real home and, therefore, he/she will cease to be a tax resident in South Africa). The physically present test requires that an individual be present in South Africa: For more than 91 days in the year of assessment; For more than 91 days in each of the preceding 5 years, and For more than 915 days in aggregate in the preceding 5 years. But not: If the individual was outside the Republic for a continuous period of 330 days after ceasing to be physically present in South Africa (then the individual will no longer be a resident from the start of the 330-day period). A person other than a natural person is defined as a resident if it is: Incorporated in the Republic, or Established or formed in the Republic, or Has its place of effective management in the Republic. Foreign income is converted into South African Rand by applying the spot rate on the date on which the amount was received or accrued. A natural person or a trust may elect that all amounts be translated to South African Rand by applying the average exchange rate for the year of assessment. The tax implication of ceasing to be a South African tax resident is that the taxpayer is deemed to have disposed of all capital assets. Non-residents are taxable on income from a source within the Republic. 8

10 Tax Rates: Individuals Tax rates: Trusts Trusts are taxed at 40%, except for a special trust created solely for the benefit of a person who suffers from: Mental illness as defined in Section 1 of the Mental Health Act 1973, or Serious physical disability, where such illness or disability incapacitates the beneficiary from earning sufficient income to maintain himself/herself. These special trusts are taxed at the rates applicable to natural persons, but do not qualify for rebates. All trusts have a year of assessment ending the last day of February and a trust is currently required to be registered as a provisional taxpayer, regardless of its activities. 9

11 Tax rates: Companies Companies / Close Corporations (CCs) Type of company Rate of tax Companies and close corporations 28% Small business corporations (SBCs) effective for years ending between 1 April 2013 and 31 March 2014: Taxable income up to R % Taxable income R to R Taxable income of R to R Taxable income in excess of R % of taxable income above R R % of taxable income above R R % of the amount above R SBCs effective for years ending between 1 April 2014 and 31 March 2015: Taxable income up to R % Taxable income R to R Taxable income R to R Taxable income in excess of R Personal service provider companies/cc Local branch of foreign company 7% of the amount above R R % of the amount above R R % of the amount above R % 28% 10

12 Microbusiness (turnover tax) for financial years ending between 1 April 2013 and 31 March 2014: R0 - R % R R R R R R R and above 1% of taxable turnover above R R % of taxable turnover above R R % of taxable turnover above R R % of taxable turnover above R Microbusiness (turnover tax) - for financial years ending between 1 April 2014 and 31 March 2015: R0 - R % R R R R R R R and above 1% of the amount above R R % of the amount above R R % of the amount above R R % of the amount above R Small Business Corporations (Section 12(e) ITA) The gross income for the year of assessment must not exceed R20 million the threshold, however, is R14 million for the years of assessment ending on/before 31 March SBC tax structure applies to companies and CCs: In which the entire shareholding/membership is held for the entire year of assessment by natural persons who hold no shares in any other private company or members interest in 11

13 any other CC or cooperatives other than those that are inactive and have assets of less than R5 000; Whose gross income for the year of assessment does not exceed R20 million; With not more than 20% of gross income consisting of investment income and income from rendering personal services, and That are not personal service 2 providers. An amendment was introduced into law that allows a new business to be set up using a shelf CC or company (an entity already registered by someone else, who then sells it on). Normally, a company or CC would be disqualified as an SBC due to the ownership rule. However, the amendment provides that the ownership rule applies from the date of trading, thus using a shelf company or corporation will no longer disqualify a business as an SBC for the first year only. Personal service providers (4th Schedule and Section 23(k) ITA) To discourage the use of corporate entities as intermediaries to provide personal services, amendments have been made to identify entities that convert income that would otherwise be taxed as employment income to the company, or CC or trust income. 2 Personal service is any service in accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, broking, commercial arts, consulting, draftsmanship, education, engineering, entertainment, health, information technology, journalism, law, management, performing arts, real estate, research, secretarial services, sport, surveying, translation, valuation or veterinary science, which is performed personally by any person who holds an interest in the CC or company referred to in the definition of SBC, except where such corporation employ three or more unconnected full-time employees for core operations. Personal service providers as defined in the 4th Schedule of the Income Tax Act (ITA) as amended - cannot be SBCs. 12

14 The personal service provider is taxed as follows: The remuneration payable to the provider by the client is subject to employees tax. Personal service providers are no longer restricted from claiming their business-related expenses as an income tax deduction. They can claim deductions for certain legal expenses, bad debts and contributions to pension, provident and benefit funds; refunds of remuneration, refunds of restraint of trade payments and any asset-related expenses associated with premises, finance charges, insurance, repairs, and fuel and maintenance, if such assets are used wholly and exclusively for trade. The income of a personal service provider is taxed at 28% since 2013 (2012: 33%). The entity may apply to SARS for a tax directive for a lower rate of tax. This will apply to a personal service provider, which is any company, CC or trust, where any service rendered on behalf of such company, CC or trust to a client, is rendered personally by any person who is connected to such company, CC or trust; and such person would be regarded as an employee of such client if such service was rendered by such person directly to such client, other than on behalf of such company, CC or trust, or where those duties must be performed mainly at the premises of the client and are subject to the control or supervision of such client, or where more than 80% of the income during the year of assessment from services rendered consists of amounts received directly or indirectly from any one client or any associated institution in relation to such client. A company, CC or trust will not be regarded as a personal service provider where such company, CC or trust employs more than three full-time employees (other than a shareholder or member) during the year of assessment, none of whom is connected to such shareholder or member. 13

15 Labour broker (4th Schedule and Section 23(k) ITA) A labour broker is any natural person (A) who, for reward, provides a client (B) with persons to render services or perform work for the client, or procures persons for a client and (A) remunerates those persons for their services to, or work done for, the client. Where a labour broker does not have a valid (IRP30) exemption certificate issued by SARS, the user of the services of the labour broker must deduct employees tax from the payments made to that labour broker. Microbusiness (turnover tax) (Section 48 48C ITA) The simplified tax system essentially consists of a turnover tax as a substitute for income tax, CGT, dividends tax and VAT. The turnover tax is optional, meaning that a microbusiness still has the option to use the current tax system. It is available to sole proprietors, partnerships, CCs, companies and cooperatives with a turnover of up to R1 million per annum. The turnover tax is calculated by applying a tax rate to a taxable turnover. The taxable turnover will consist of amounts: Not of a capital nature; Received by the microbusiness (cash basis); During the year of assessment; From carrying on business activities in the Republic. Fifty percent of all receipts of a capital nature from the sale of assets used mainly for business, and immovable property are included in taxable turnover. The turnover tax system does not provide for the deduction of any business expenses. The first R dividends paid during the year of assessment by the microbusiness are exempt from dividends tax. The turnover tax is levied annually on a year of assessment that runs from the beginning of March to the end of February of the 14

16 following year. It includes two six-monthly interim (provisional) payments. A microbusiness that opts for the turnover tax must apply to do so before the beginning of a year of assessment and remain in the system for at least three years unless it is specifically disqualified. Equally, a microbusiness that exits the turnover tax system will not be allowed to re-register for three years. The following persons are excluded: If any of the shareholders has an interest in the equity of any other company; If more than 10% of a person's total receipts during the year of assessment consist of investment income; Public benefit organisations and recreational clubs; A personal service provider or labour broker without an exemption certificate; A business that provides professional services; If the total of receipts from the disposal of immovable property and other assets used mainly for business purposes exceeds R1,5 million over three years (current year and the last two years); If any of the shareholders is a person other than a natural person; If the year of assessment does not end on the last day of February; Trusts. Microbusinesses were allowed to register for VAT from March

17 Taxation of Real Estate Investment Trusts (Section 25BB of the Income Tax Act) In South Africa, two main types of property investment vehicles exist property unit trust (PUT) and property loan stock (PLS). Property unit trust (PUT) PUT is regulated constantly by the Financial Services Board (FSB), whilst PLS, the newer entrant, is regulated by the Companies Act. Both are listed on the JSE to provide the required liquidity for investors and both are regulated by JSE rules. PUTs are held in a trust and managed by an external company. They operate in a regulated arrangement known as a property investment scheme approved by the FSB in terms of the Collective Investment Schemes Control Act. Investors in a PUT hold units in the trust that derives the bulk of its income from the rental of immovable property. Income tax implications of a PUT - Viewed as tax conduit; - Distributions are treated as ordinary revenue in the hands of investors; - Free from CGT; - Unlike companies, the net effect is to tax the rental income at only one level; - Investors pay CGT only when investors dispose of their units; - Disadvantage of PUT is that it cannot benefit from the reorganisation rollover rules because it operates as a trust. Property loan stock (PLS) - A PLS is a company not regulated by the FSB, but regulated by the Companies Act and the listing requirements of the JSE; - A PLS is internally managed, while a PUT is externally managed; 16

18 - A PLS is unique because of its dual-linked nature investors hold a share and a debenture (majority of the value attributable to the debenture) and generally requires regular interest payments from the company; - Interest payments are available only to the extent of PLS company profits. The debenture is not redeemable. Income tax implications of PLS - A PLS is a registered company, liable to pay tax at the standard company income tax rate of 28% and the CGT rate of 18,6%; - The debenture generates regular interest payments. This interest arguably gives rise to annual interest deductions for the company and annual interest income for the investors; - Most PLS companies distribute most or all of their profits in the form of interest. These interest deductions typically leave the PLS with little or no taxable income; - Dual-linked makes tax deductible interest questionable. Debentures component to be viewed as dividends. New entity proposed: Real Estate Investment Trust (REIT) - A real estate investment trust (REIT) is a listed company or trust that invests in immovable property. It receives income from rental and distributes it to investors. A REIT can deduct such distributions if it resides in South Africa and at least 75% of its gross income is rental income. Requirements: Must be resident/listed on JSE/apply equally to PLS and to PUT; REIT tax regime will treat both PLS and PUT as a company; REITs allow deduction of qualifying distributions to investors. Qualifying distribution more than 75% of gross income of REITs consists of rental income. 17

19 The REIT may claim deductions in respect of amounts: declared by the REIT as dividends (other than in respect of share buy-backs) to its shareholders; and; incurred by it as interest on the debenture portion of a linked unit issued to shareholders (if applicable), during the year of assessment. In the case of a pre-existing company, the 75 per cent test is measured during the preceding year of assessment (i.e. the year before the declaration or incurral). In the case of a newly formed company, the 75 per cent test is measured with reference to the current year (i.e. the year of declaration or incurral) up until the date of the declaration/incurral. The aggregate amount of the distribution deduction is limited to the REIT s taxable income for the year of assessment before: (i) the inclusion of taxable capital gain and (ii) the distribution deduction are taken into account. Therefore, a REIT cannot create an assessed loss by virtue of a distribution deduction nor can deductible distributions be fully derived from capital gains. Tax implication for shareholders - Residents Dividends distributed by a REIT to its resident shareholders (company, trust or natural persons) subjected to normal tax (and exempt from dividends tax), regardless of whether the REIT makes qualifying distributions during the year of assessment; Interest forming part of a dual-linked unit also subjected to normal tax. - Foreign shareholders in receipt of distribution by a REIT will be subjected to dividend tax from 1 January In the meantime, all payments to foreign persons will be exempt. 18

20 Exemption from securities transfer tax The acquisition of shares in a REIT is exempt from securities transfer tax. The relief matches the relief for shareacquisitions in a collective investment in securities. Effective date The proposed amendment is effective for years of assessment starting on or after 1 April Provisional tax (paragraphs 17 27, 4th Schedule ITA) A provisional taxpayer is: a person (other than a company) who derives income, other than remuneration or an allowance or advance as contemplated in Section 8(1), such as travel allowance a company (including CC), excluding public benefit organisations or recreational clubs a trust, or any person who is notified by the Commissioner (SARS) that he/she is a provisional taxpayer; but excludes: - a natural person who, on the last day of the year of assessment, will be under the age of 65 years and who does not derive income from the carrying on of trade/business, if the taxable income for the year will not exceed the tax threshold, or the taxable income for that year is derived from interest, dividends, and/or rental income that do not exceed R20 000, and - a natural person who, on the last day of the year of assessment, will be 65 or above, and his taxable income for that year will not: exceed R ; be derived wholly or in part from the carrying on of business/trade, and 19

21 be derived otherwise than from remuneration, interest, dividends on shares in permanent building society or rental income. Every provisional taxpayer must file returns for provisional tax payments based on estimated taxable income: The first provisional tax payment/estimation must be done within six months of the beginning of the year of assessment. This is based on an amount equal to half of the tax on the estimated taxable income for the year, less any employees tax or foreign tax credit deducted or paid for the same period to date. The estimated taxable income must not be less than the basic amount, other than when prior consent is received from the Commissioner. The second provisional tax payment/estimation must be done on or before the last day of the year of assessment, based on the total estimated taxable income for the year of assessment, less employees tax, first provisional tax paid, or foreign tax credit paid or deducted for that year. With reference to the calculation of the basic amount, paragraph 19(1) of the 4th Schedule to the ITA was amended and reads as follows: Paragraph 19(1)(d)(iii): Provided that, if an estimate under item (a) or (b) must be made: (a) more than 18 months, and (b) in respect of a period that ends more than one year after the end of the latest preceding year of assessment in relation to such estimate, the basic amount determined in terms of sub item (i) and (ii) shall be increased by an amount equal to 8% per annum of that amount, from the end of such year to the end of the year of assessment in respect of which the estimate is made. In practice, it means is that if a provisional taxpayer has received an assessment within 18 months when provisional tax is payable, the basic amount used to determine the estimate must not be inflated at all (that is 0%). If a provisional taxpayer has been last assessed in the period beyond the 18-month threshold, then the basic amount 20

22 ought to be increased by 8% per annum. If the provisional taxpayer was assessed 25 months ago before the provisional tax is payable the basic amount must be topped by 16%. A further amendment from 1 October 2012 is as follows: Paragraph 19(1)(e)(ii): in respect of which a notice of assessment relevant to the estimate has been issued by the Commissioner not less than 14 days before the date on which the estimate is submitted to the Commissioner. This amendment now provides that if a provisional taxpayer receives an assessment within 14 days within which provisional tax payment is payable, the assessment may not be used in the calculation of the basic amount used for determining the estimate of taxable income. The Commissioner may request the provisional taxpayer to justify the estimate made for provisional tax purposes (paragraph 19(3) of the 4th Schedule), and the Commissioner may increase the estimate submitted by the taxpayer to an amount he considers to be reasonable. Where the provisional taxpayer s taxable income for the year of assessment is less than or equal to R1 million, the second provisional tax payment must be based upon an estimate of taxable income that is not less than the lower of the basic amount or 90% of the actual taxable income (as assessed). If the estimate of taxable is less than 90% of the actual taxable income, a 20% penalty tax of the provisional tax underpaid is imposed, calculated on the difference between the tax liability for 90% of the assessed taxable income and the tax liability per the basic amount. While the basic amount provides relief from the underestimation penalty, the taxpayer may not rely on the basic amount when making an estimate, as the taxpayer is required to make an estimate of taxable income. If the provisional taxpayer s taxable income for the year of assessment exceeds R1 million, then the second provisional tax payment and estimated taxable income must be at least 80% accurate when compared to the assessed taxable income for the 21

23 year. Failing which, a 20% penalty tax of the provisional tax underpaid is imposed, calculated on the difference between the tax liability for 80% of the assessed taxable income, the actual employees tax and provisional tax paid for that year of assessment. The provisional taxpayer cannot rely on the basic amount for relief from the underestimation penalty. A third optional provisional tax payment may be made within six months of the close of the year of assessment if the year-end is not February, and seven months after close of the year of assessment if year-end is February (individuals and trusts must have a February tax year-end). Companies or CCs with a taxable income of more than R20 000, and individuals and trusts with a taxable income of more than R50 000, may make the third additional payment. By making such an additional provisional tax payment (prior to that year of assessment being assessed), the taxpayer will avoid interest against underpayment. The third top-up payment will provide relief only from interest charges and not from the underestimation penalty. The third top-up payment must be made before the assessment is issued for that year of assessment. Taxation of individuals and employees Married persons Married individuals are generally taxed as separate taxpayers, except: - Where income is received by, or accrued to, a spouse through a donation, settlement or disposition by the other spouse, which is deemed to be income of the spouse who made the donation, settlement or disposition that was done to avoid tax; - Where income is derived by one spouse from the other spouse, a partnership or a private company where the other spouse is a connected person, or derived from a trade that is connected to the trade carried on by the other spouse, is taxed in the hands of the other spouse to 22

24 the extent of the amount of which the income is excessive; and - Where the person is married in community of property, the net rental income from property or interest income by both persons is deemed to accrue in equal portions to each spouse. Any other income that does not fall within the joint estate is taxed in the hands of the spouse entitled thereto. Employees tax (PAYE) Employers are required to withhold employees tax (PAYE) from the remuneration of their employees, which is calculated on the balance of remuneration (remuneration less deductions). The calculation of employees tax is based on the standard tax rates for that year of assessment. However, temporary employees (also known as non-standard employees ) will not be taxed based on the standard tax rates for employees tax deduction purposes. A standard employee is an employee who works for 22 hours or more a week, or works fewer than 22 hours a week and has made a written declaration that he/she has no other employment. Where an employee works fewer than 22 hours a week and has another job, that employee is non-standard. Employers must deduct employees tax at a rate of 25% from the taxable remuneration paid to the non-standard employee. However, no tax is deducted if the non-standard employee worked at least five hours on a specific day, and the daily rate of pay is less than the equivalent of the annual tax threshold. Employees tax for directors (Paragraph 11C, 4th Schedule ITA) The amount subject to employees tax is based on the remuneration of the director for the previous year of assessment. It is calculated with following formula: Y = T/N 23

25 where: Y: amount of remuneration to be determined, N: the number of completed months that the director was employed by the company in the previous year of assessment, and T: balance of remuneration paid/payable to the director by the company for the previous year of assessment of the director (the year that ended the month before that), and where the remuneration for the previous year of assessment is not determinable. It would be the balance of remuneration for the year preceding the previous year of assessment plus 20% of that remuneration. The balance of remuneration must be reduced by: Compensation for loss of office awards; Any taxable lump sum from a pension, provident or retirement annuity fund; Any commuted amounts due under a contract of employment or a service, and The taxable portion of gains on share options. Where more than 75% of the private company director's remuneration consists of fixed monthly remuneration, the company need not apply the deeming provisions. Variable employment income from 1 March 2013 Timing of accrual and deduction, and employees tax withholding have been amended. The employer can now claim a deduction only in the year of assessment in which the remuneration was paid and not merely when the obligation to pay has accrued. The employee, in turn, will recognise the income from remuneration only when payment is made. Employees tax withholding is against the payment made. The timing for both employer and employee is not the same. Travel allowance (Section 8(1)(b) ITA) An allowance is granted to an employee for travelling expenses for business purposes. From 1 March 2010, the deeming provisions on business and private kilometers are no longer applicable. All employees who receive a travel allowance 24

26 should keep records of actual business distances travel by means of a logbook, which is required to support the claim for business use on assessment. For the calculation of employees tax, 80% of the travel allowance is included in taxable income. Travel allowance must be reported against code Where an employer reimburses the employee for business kilometers travelled in addition to travel allowance, the value of the travel allowance should be reduced by the estimated value of the reimbursements. Failing to reduce the travel allowance may be regarded as an excessive allowance, as the value of the allowance should be based on the expected businessrelated expenditure, where the employer is certain that the employee will incur business-related expenditure on behalf of the employer. If employers reimburse employees only for business travel that does not exceed 8 000km for the year, at a rate no greater than R3,30 for the year starting on or after 1 March 2014 (2013: R3,24), the reimbursement will not be included in taxable income (reported against code 3703). This alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle. However, if the employee receives a travel allowance or the reimbursement is more than 8 000km per year or at a rate 25

27 greater than R3,30 per km, the reimbursement is not subject to employees tax, but is included in taxable income on assessment (reported against code 3702). A travel logbook must contain at least: - Date of travel; - Business kilometres - Destination(s) of travel; travelled. - Reason for travel, and Subsistence allowance (Section 8(1) (c) ITA) Where an employee is required to spend at least one night away from his/her usual place of residence on business, the employer may pay a subsistence allowance that is excluded from taxable income. However, if the payments exceed the limits, the excessive payment is assessed by SARS. The following limits for subsistence allowances are for travel within the Republic: - meals and incidental costs R335 a day, effective 1 March 2014 (2013: R319 per day) are deemed to have been expended, or - incidental costs only R103 a day, effective 1 March 2014 (2013: R98 per day) are deemed to have been expended. The deemed expenditure for subsistence allowances for travelling outside the Republic is based on an amount prescribed and updated annually, based on a rate per country, which may not be for a period of more than six consecutive weeks. Below is the full list of foreign subsistence allowances. 26

28 27

29 28

30 29

31 30

32 Fringe benefits - Right of use of motor vehicle (company car) (Paragraph 7, 7th Schedule ITA) A taxable benefit arises where an employee is granted the right to use an employer s motor vehicle, which includes private use (such as travelling between employee s home and place of work). A fixed percentage of the determined value of the motor vehicle, less any consideration given by the employee for the use, is used as the basis of determining the taxable value to be placed on the private use of the employer-provided motor vehicle. The determined value means: The original cost to the employer (or associated institution in relation to the employer), excluding finance charges, interest and VAT, where the purchase was a bona fide sale agreement at arm s length, or 31

33 Where the vehicle is held by the employer (or associated institution in relation to the employer) under a lease and ownership, which passes to the employer on termination of the lease, either the retail market value of the vehicle at the date the employer first obtained the right of use, or the cash value excluding VAT as defined in the Value-Added Tax Act, where the lease is an instalment credit agreement; or In any other case, the market value of the vehicle at the time the employer (or associated institute in relation to the employer) first obtained the vehicle or the right of use. The determined value is reduced by 15% depreciation (reducing balance method) for each completed 12-month period that the employer owned the vehicle prior to granting the use of such to the employee. From 1 March 2011, the following amendments (to the above) came in: The monthly taxable fringe benefit value for the first motor vehicle increased from 2,5% to 3,5% of the determined value, and if a full maintenance plan is included in the purchase price, the monthly fringe benefit rate is reduced to 3,25%, provided the maintenance plan covers all maintenance expenses other than consumables (such as fuel, top-up oil and tyres); The determined value of a motor vehicle includes the cost of any maintenance plan and VAT; Employees tax withholding is based on 80% of the taxable fringe benefit value; Where the employer is satisfied that at least 80% of the use of the motor vehicle for a year of assessment is for business purposes, only 20% of such fringe benefit is subject to employees tax (supporting travel logbook and reasons for employer s presumption must be retained); 32

34 The taxable fringe benefit value may be reduced on assessment by the actual business use, provided that an accurate travel logbook has been maintained, and Provisions allow for the offset of employee-borne costs (such as insurance, licensing fees and fuel) and recognition of employer reimbursements on assessment. Where an employer is a registered VAT vendor and the employee is granted the right of use of a motor vehicle, the monthly VAT liability (deemed supply) is based on 0,3% of the determined value if input tax was denied for that motor vehicle, and 0,6% if input tax was not denied. - Residential accommodation (Paragraph 9, 7th Schedule Income Tax Act) Where the employer provides free or cheap housing, the taxable value is the greater of the amount of the actual cost to the employer or the amount determined according to the formula. (A B) x C/100 x D/12 where: A = remuneration in the previous year, excluding travel allowance, the taxable value of a company car, and the taxable value of free or cheap residential accommodation B = R (subject to certain exclusions) C = 17 unless the accommodation consists of at least 4 rooms = 18 if unfurnished and power or fuel is suppled by the employer = 18 if furnished and no power or fuel is supplied by the employer = 19 if furnished and power or fuel is supplied by the employer D = the number of completed months in the year of assessment during which the employee is entitled to the accommodation The amount of any rentals paid by the employee is deducted from the amount calculated. 33

35 No rental value is placed on the following: Supply of accommodation in the Republic to an employee away from his usual place of residence in the Republic. If an employee's usual place of residence is outside South Africa, the employee will not be taxed on being given the use of residential accommodation in South Africa for up to two years from the date of arrival in South Africa, or if the employee is physically present in the Republic for fewer than 90 days. The exemption will not apply: if the employee was present in the Republic for more than 90 days immediately preceding the date of arrival, or to the extent that the cash equivalent of the value of the taxable benefit is more than R multiplied by the number of months during which the housing was provided. - Holiday accommodation (Paragraph 9(4), 7th Schedule ITA) If the accommodation is acquired by the employer, the employee is taxed on all costs incurred by the employer, which include meals, services and refreshments. In all other cases, the employee is taxed on an amount equal to the prevailing market rate per day at which the accommodation could normally be let to a person who is not an employee. - Long-service (and bravery) award (Paragraphs 2(a) and 5, 7th Schedule ITA) The first R5 000 of assets given to an employee as an award for long service is not subject to tax, provided that such award is given as an asset (not cash or similar to cash) and is for an initial unbroken period of service of not fewer than 15 years, and any subsequent unbroken period of service of not fewer than 10 years. The value of the award given in cash or voucher is taxable. 34

36 The value of the asset that exceeds R5 000 is taxed as a fringe benefit. - Bursaries and scholarships (Section 10(1)(q) ITA) A bona fide bursary or scholarship granted by an employer to an employee or employee s relative is exempt in the hands of the employee, provided that: The employee agrees to reimburse the employer if the employee fails to complete the studies (no repayment is required if the failure directly results from death, illhealth or injury); The bursary is granted to an employee s relative and the employee does not earn more than R (2013: R ) per annum, or The value of the bursary or scholarship does not exceed R (further education National Qualifications Framework NQF level 5 onwards) or R (basic education NQF level 1 up to NQF level 4) per relative per annum. If the bursary exceeds R (higher education) or R (basic education), the excess is taxed in the hands of the employee. If the bursary or scholarship is taxable, it must be taxed as a fringe benefit (reported against code 3801). - Low-interest or interest-free loans (Paragraph 11, 7th Schedule ITA) A taxable benefit arises where a loan is granted to an employee, where either no interest is payable, or with interest at a rate lower than the official rate of interest. The fringe benefit value is the amount of interest applicable at the official rate of interest, compared to the interest paid/payable by the employee. No taxable value is recognised for a low-interest loan, if such is a casual and irregular loan that does not exceed R3 000 at any time, or if such loan is to enable the employee to study. 35

37 - Right of use of an asset (Paragraph 6, 7th Schedule ITA) A taxable benefit arises when an employee is granted the right to use an asset of the employer for his/her private or domestic use, either free of charge or for a charge that is lower than the value of use (other than residential accommodation or use of motor vehicle). Exclusions: Private use that is incidental to the business use; Amenities enjoyed at work or qualifying recreational facilities; Use for private purpose is for a short period and the value of such use is negligible; Assets consisting of books, literature, recordings or works of art; or Private use of cell phone, computer, and related hardware and software that is used mainly for business purposes. - Free or cheap services (Paragraph 10, 7th Schedule ITA) Where services are provided to an employee by his/her employer (or some other person for and on behalf of the employer), for an amount lower than the actual costs or at no cost to the employee, such services give rise to a fringe benefit. The taxable benefit is calculated on the difference between the actual cost to the employer and the amount paid by the employee for that service. The following services are excluded (no taxable benefit): In certain circumstances where the employer is in the business of transporting passengers; Transport service for employees between their homes and work; Services rendered by the employer to assist with better performance of the employee s duties; and Travel facilities granted to the spouse or minor children of an employee who is stationed more than 250km away from his/her usual residence for longer than six months in a tax year. 36

38 - Acquisition of asset at less than actual value (Paragraphs 2(a) and 5, 7th Schedule ITA) A taxable benefit arises where an employee acquires an asset for either no consideration, or for a consideration that is less than the value of the asset. The value of the asset in determining the taxable benefit is the market value of the asset at the time the employee acquired it, less any consideration paid by the employee. However, the cost of the asset must be used instead of the market value, where the asset is movable property, other than marketable security or an asset that the employee had prior use of, and was acquired by the employer to dispose of such asset to the employee. If the asset was held as trading stock, the market value must be used, unless the market value is less than the cost. No market value is placed on fuel or other consumables for the use of a company car, or an asset awarded as a longservice or bravery award. - Payment of employee s debts (Paragraph 13, 7th Schedule ITA) A taxable benefit arises when the employer has directly or indirectly paid an amount owing by the employee to any third party without holding the employee accountable for such amount or requiring the employee to reimburse the employer. This includes releasing an employee from an obligation to pay an amount owing by the employee to the employer. The taxable value is the amount the employer paid/settled on behalf of the employee, or the amount of debt from which the employee has been released. - Meals and refreshments (Paragraph 8, 7th Schedule ITA) A taxable benefit arises where the employer provides meals and refreshments. The employee is taxed on the 37

39 cost to the employer for the provision of meals or refreshments, subject to the following exclusions: Where supplied in a canteen or dining room operated for employees; Where supplied during business hours (including extended working hours and special occasions), and Where enjoyed by an employee providing entertainment on behalf of the employer. - Uniforms (Section 10(1)(nA) ITA) Where it is a condition of employment that an employee is required to wear a special uniform while on duty, which is clearly distinguishable from ordinary clothing, the value of such uniform given to the employee, or any reasonable allowance granted by the employer in lieu of such uniform, is exempt from tax. - Share incentive schemes An employee (including director) who derived a gain from a right obtained in terms of a share incentive schemes is subject to tax on such gains. Rights obtained prior to 26 October 2004 are subject to Section 8A ITA. Rights obtained on or after 26 October 2004 are subject to Section 8C ITA. Broad-based share incentive schemes are subject to Section 8B ITA. The taxable gains made in respect of rights to acquire marketable securities in terms of Section 8A are based on the difference between the amount paid and the market value at the date of exercise, cession or release. The employer must apply for a tax directive on the gains made. The vesting of equity instruments (including shares, share options, convertible instruments or contractual rights referenced to shares) that are awarded by an employer, in terms of Section 8C, is taxed as follows: 38

40 The value subject to tax is the difference between the amount paid by the employee to acquire the equity instrument and its market value on the date of vesting; The vesting date is based on the restriction of the instrument, as unrestricted instruments will trigger a tax liability when acquired, whereas restricted instruments will trigger a tax liability when the restriction ceases; The value of the gain that is determined on the vesting of an equity instrument is taxed as income (and subject to employees tax), and An employer must apply for a tax directive on the gain made from the vesting of any equity instrument. - A broad-based employee share plan (Section 8B) is subject to the following requirements: The equity shares in the employer, or other associate company in the group, are acquired by the employees for a minimum consideration; At least 80% of the permanent/full-time employees should be entitled to participate, but this should not include employees who already participate in another equity incentive scheme of the group; Employees who acquire the shares are entitled to all the dividends; Employees must have full voting rights of the shares acquired; No restrictions must be imposed on the disposal of the shares, other than: restrictions imposed by legislation, or where an employee has been found guilty of poor performance or misconduct; a right of any person to acquire the equity shares from employees at market value, or a restriction in terms of which the employee may not dispose of those equity shares for at least five years from the date of the granting of such shares. 39

41 The value of the equity shares acquired in terms of such plan must not exceed R in aggregate over a fiveyear period. The employee is subject to CGT on the amounts received or accrued, provided the shares are held by the employee for more than five years before disposal. If the employee disposes of the shares within five years of acquisition, any gains made are taxable as normal income. The employer company may claim a deduction of the market value of qualifying equity shares granted to employees, limited to a maximum of R per annum, and the excess may be carried forward to the following tax years. Deductions - individuals Home study expenses (sections 11(a), 11(d), and 23(b) ITA) A deduction for home study expenses is allowed where the study is regularly and exclusively used for the purpose of the taxpayer's trade and is specifically equipped for such purpose. In the case of an employee who derives income mainly from commission, his duties are mainly performed other than in an office provided by the employer. In the case of employees, other than commission earners, the employee is required to perform his duties mainly in the home study. Limitation of employee deductions (Section 23(m) ITA) Only the following expenses may be deducted by individuals, except where the employee s remuneration is wholly or mainly derived from commissions based on sales or turnover: - Business travel deduction against travel allowance; - Certain medical expenses; - Contributions to a pension and/or retirement annuity fund; - Donations to certain public benefit organisations; - Specific expenditure against allowances of holders of public office; - Wear-and-tear allowances on equipment; 40

42 - Premium paid of an insurance policy that covers against loss of income caused by illness, injury, disability or unemployment, and - Home office expenses under certain circumstances. Ringfencing of assessed losses (Section 20A ITA) Assessed losses incurred by a natural person in the carrying on of a secondary trade will not be allowed to be set off against income other than income derived from that trade (ringfenced), where: - The individual s taxable income, before setting off any assessed loss or balance of assessed loss, is equal to or exceeds the level at which the maximum rate of tax applies, and - The individual has incurred assessed loss from the secondary trade in at least three years of assessment of any five-year period, or - The individual has carried on any suspect trade. Suspect trades: - Any sport practised by the natural person or any relative; - Any dealing in collectibles by the person or any relative; - The rental of residential accommodation, unless at least 80% of it is used by persons who are not relatives for at least half of the year of assessment; - The rental of vehicles, aircrafts or boats as defined in the 8th Schedule, unless at least 80% of their use is by persons who are not relatives for at least half of the year of assessment; - Animal showing by the person or any relative; - Farming or animal breeding, unless the person carries on farming, animal breeding or activities of a similar nature full-time; - Any form of performing or creative arts practised by the person or any relative, or - Any form of gambling or betting practised by the person or any relative. 41

43 The taxpayer could avoid ringfencing where it could be demonstrated that there is a reasonable prospect of deriving a taxable income within a reasonable period of time, and is not from the carrying on of a suspect trade when the taxpayer has, during the 10-year period ending on the last day of that year of assessment, incurred an assessed loss in at least six of the years of assessments in carrying on that trade (before taking into account any balance of assessed losses carried forward). Pre-trade expenditure (sections 11A and 23H ITA) Expenses or losses incurred by a taxpayer prior to the commencement of, and in preparation for, carrying on any trade that would have been deductible had the expenses or losses been incurred after that person started carrying on that trade, and that was not allowed as a deduction in that year or any previous year of assessment, are allowed as a deduction from the income derived in the year that trade begins. The expenses or losses cannot take the taxpayer into a loss situation, nor can they increase a trade loss if the taxpayer is already in a loss situation. The excess expenditure over income is ringfenced and can be set off against income from that trade only in the following year of assessment. Income replacement policies (Section 11(a) ITA) The premiums paid by a person are tax deductible if the benefits, when paid to that person, are taxable, to the extent that such premiums paid are towards income protection. An income protection/replacement policy is a policy that will cover the individual person against loss of income as a result of illness, injury, disability or unemployment (not Unemployment Insurance Fund (UIF) benefits). Pension fund contributions (Section 11(k) ITA) Limited to the greater of: - 7,5% of remuneration derived from retirement funding employment, or - R

44 Unutilised portions of contributions cannot be carried forward to the following year of assessment, but are accumulated to determine the tax-free portion of the lump sum on retirement. Retirement annuity fund contributions (Section 11(n) ITA) Limited to the greater of: - R1 750, or - R3 500 less current pension fund contributions, or - 15% of taxable income from non-retirement funding income (excluding remuneration subject to pension fund contributions). Arrear contributions Arrear contributions are limited to R The unused portion of contributions can be carried forward to the following year. Provident fund contributions Contributions to approved provident funds by natural persons are not allowed as a deduction from the taxpayer's income. Employer policies - Unapproved group life policy: Employer contributions are taxed. - Policies protecting income or income-earning capacity: income-replacement policies: Premiums paid by the employer are tax deductible for the employer; Premiums included in the income of the employee as a fringe benefit; Premiums tax deductible for employees, and Benefit payments (annuity-type income) taxed at marginal rates. policies aimed at protecting the income-earning capacity of an employee and a lump sum is paid upon a certain event: Premiums paid by the employer are tax deductible for the employer; Premiums included in the income of the employee as a fringe benefit; 43

45 Premiums are not tax deductable for employees; and Benefit payments received are tax-free in the hands of the employee. - Key-man policies: The employer may elect to get a tax deduction for the premiums. This became effective 1 March 2012 and an election on policy contracts effective after that date will have to be made in terms of the contract. Election on policy contracts effective prior to 1 March 2012 must have been concluded by 31 August The taxing provisions are: no election the premiums are not tax deductible for the employer, and the benefits are tax-free for the employer; election can be made to claim the premiums as tax deductions (the benefits received are taxable for the company) if the following criteria are met: The company must be insured against the loss of a key person by death, disability or severe illness; The company must be the exclusive and beneficial owner of the policy, and It must be a risk-only policy. - Cession of policies: The disposal of all risk-only policies will not give rise to a taxable capital gain, regardless of whether the cession is effected by the original policy owner. Losses are disregarded for CGT purposes. Donations (sections 10(i)(cA) and 18A ITA) Donations to certain public benefit organisations and those to institutions, boards or bodies contemplated in Section 10(i)(cA)(i) are deductible, limited to 10% of taxable income, before the deduction of donations and medical expenses, and excluding any retirement lump sum benefit. The taxpayer must be in receipt of a Section 18A donations certificate. Donations in excess of 10% of taxable income are rolled over to the next tax year, but are still limited to 10% of the taxable income in a future year. 44

46 Deduction for medical and dental expenses (Section 18 ITA) A taxable benefit arises where an employer contributes to a medical aid or other benefit fund. The value of the benefit is the value of the monthly contributions made by the employer. No taxable fringe benefit arises for contributions made by an employer to a medical aid scheme, where: - The employee is over 65 years of age; - The employee has retired because of superannuation, ill health or other infirmity, or - The dependants of a person, after such person s death if such person was in the employ of an employer on the date of death, or - The dependants of a pensioner, after such person s death, if such person retired from service because of age, poor health or other disability. In terms of Section 18(1)(a) of the Act, contributions to a medical aid scheme are allowed as a deduction against income. The contributions must have been made by the taxpayer to any medical scheme registered under the provisions of the Medical Schemes Act (Act 131 of 1998). This means that the taxpayer may make any contributions for him- or herself, his or her spouse and any dependant, to any medical scheme. It does not necessarily mean that the taxpayer s dependant must be a member of that taxpayer s specific medical scheme. Taxpayers will qualify for a medical deduction based on the number of dependants for whom the taxpayer contributes to a medical scheme. The term dependant [Section 18(4A)] will include members of the taxpayer s immediate family for whom the member is liable for family care and support. ITA Section 18(4) also defines the term child. A child includes the taxpayer s own children, children of spouses, adopted children and illegitimate children. 45

47 The taxpayer can claim for a child who was alive during any portion of the year of assessment, and who on the last day of the year of assessment (a) was unmarried and was not or would not, had he/she lived, have been over 18; over 21 and was wholly or partially dependent on the taxpayer for his maintenance and had not become liable for the payment of normal tax for that year; or over 26 and was wholly or partially dependent on the taxpayer for his maintenance and had not become liable for the payment of normal tax in that year and was a full-time student at a public educational institution, or (b) in the case of any other child, was incapacitated by a disability from maintaining himself or herself and was wholly or partially dependent on the taxpayer for maintenance and had not become liable for the payment of normal tax for that year. To qualify for a deduction for medical expenses, the taxpayer must meet all the aforementioned requirements. If, for example, the child is 21 years old, but is liable for income tax, the taxpayer cannot claim any medical expenses for him or her. If the child is under 18, but is married, the taxpayer may not be able to claim the medical expenses paid for him or her. Expenses that are contributions to a registered medical aid society must have been incurred and paid before any claims for such expenses may be made. The contributions to the medical aid scheme must not be simply due and payable. Monthly tax credit Monthly tax credits for medical scheme contribution were increased from 1 March 2014: 2014/ /14 R257 for the first two beneficiaries R242 R172 for each additional beneficiary R162 46

48 in the case of: - An individual who is 65 and older, or if that person, his or her spouse or child is a person with a disability, 33,3% of qualifying medical expenses paid and borne by the individual and an amount by which the medical scheme contributions paid by the individual exceed three times the medical scheme fees tax credits for the tax year. - Any other individual, 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which the medical scheme contributions paid by the individual exceed four times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7,5% of taxable income (excluding retirement fund lump sums and severance benefits). Exempt income - individuals Relocation allowance (Section 10(1)(nB) ITA) Where the employer has borne the following expenses for relocating/transferring an employee from one place to another, such items are exempt from tax: - The expenses of transporting the employee and members of the household, including personal effects, from the previous residence to the new residence; - The expenses of hiring residential accommodation in a hotel or similar for the employee and members of the household for 183 days after the transfer took place; and - Costs that the Commissioner may allow that have been incurred by the employee in the sale of the previous residence, and in settling in at the new residence. The employer may reimburse the employee for the following, exempt of tax: - Registration of a mortgage bond and legal fees; - Transfer duty; - Cancellation costs of a mortgage bond; and - Agent s fees for the sale of the employee s previous residence. 47

49 If no reimbursement is made, a settling-in payment equivalent to one month s basic salary is exempt from tax (includes compensation for new school uniforms, replacement of curtains, motor vehicle registration fees, as well as telephone, water and electricity connection costs). Foreign employment (Section 10(1)(o) ITA) Employees who are residents of the Republic are exempt from tax on remuneration earned from services rendered outside of the Republic (from employment), where: - The employee was outside of the Republic for more than 183 days in aggregate, and - The employee was outside the Republic for a continuous period of at least 60 days during any 12-month period. Interest earned (Section 10(1)(i) ITA) With effect from 1 March 2014, the tax-free, interest-income threshold is as follows: Below age 65 R R and over R R Interest is exempt where earned by non-residents who are physically absent from South Africa for at least 182 days during the 12-month period before the interest accrues or is received and who were not carrying on business in South Africa through a fixed place of business during that period of 12 months. From 1 January 2015, the debt from which the interest arises must not be effectively connected to a fixed place of business in South Africa. Foreign dividends Most foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 15%. No deductions are allowed for expenditure to produce foreign dividends. 48

50 Individual disability insurance (Section 10(1)(gI) ITA) With effect from 1 March 2015, any amount received (policy payout) in respect of a policy of insurance relating to death, disablement, severe illness or unemployment of a person who is the policyholder of the disability insurance policy will be taxfree. Retirement fund lump sum tables Lump sum benefits are taxed according to two tables preretirement withdrawals (mainly following resignations) and at retirement. Below are the adjustments to the lump sum tables. Pre-retirement lump sum taxation table for the tax-year ending February 2014 and for the tax year ending February 2015 Retirement lump sum taxation table for the tax year ending February 2014 and for the tax year ending February 2015 Wear-and-tear allowance (Section 11(e) ITA) The wear-and-tear allowance is available for certain qualifying assets used for the purposes of trade. These assets must be: - Owned by the taxpayer; or - Acquired by the taxpayer under an instalment credit agreement as defined in paragraph (a) of the definition of that term in Section 1 of the VAT Act. 49